USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 96-1642
ED PETERS JEWELRY CO., INC.,
Plaintiff, Appellant,
v.
C & J JEWELRY CO., INC., ET AL.,
Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND
[Hon. Francis J. Boyle, Senior U.S. District Judge]

Before
Torruella, Chief Judge,

Aldrich and Cyr, Senior Circuit Judges.

Robert
Corrente, with whom

Corrente,
Brill
&
Kusinitz,

Ltd
Sanford J. Davis
and
McGovern & Associates

were on brief for appellan

John A. Houlihan
, with whom
Edwards & Angell
and

Marc A. Crisaful

were on brief for appellees Fleet National Bank and Fleet Credit Cor
James
J.
McGair, with whom

McGair
&

McGair was on brief for

appellees C & J Jewelry Co., Inc. and William Considine, Sr.

August 29, 1997

CYR, Senior Circuit Judge. Plaintiff Ed Peters Jewelry

Co., Inc. ("Peters") challenges a district court judgment entered

as a matter of law pursuant to Fed. R. Civ. P. 50(a) in favor of

defendants-appellees on Peters' complaint to recover $859,068 in
sales commissions from Anson, Inc. ("Anson"), a defunct jewelry

manufacturer, its chief executive officer (CEO) William Considine

Sr. ("Considine"), its secured creditors Fleet National Bank and

Fleet Credit Corporation (collectively: "Fleet"), and C & J Jewel

Company ("C & J"), a corporate entity formed to acquire Anson's
operating assets. We affirm the district court judgment in part,
and vacate and remand in part.
I
BACKGROUND
We restrict our opening factual recitation to an
overview, reserving further detail for discussion in connection

with discrete issues. Anson, a Rhode Island jewelry manufacturer,

emerged from a chapter 11 reorganization proceeding in 1983.

Thereafter, Fleet routinely extended it revolving credit, secured

by blanket liens on Anson's real property and operating assets.
In January 1988, Anson executed a four-year contract

designating Peters, a New York corporation, as one of its sales

agents. Peters serviced Tiffany's, an account which represented
roughly one third of all Anson sales. By the following year,

The facts are related in the light most favorable to appella

Peters, the nonmoving party. See Fed. R. Civ. P. 50(a);

Coyante v.
Puerto Rico Ports Auth., 105 F.3d 17, 21 (1st Cir. 1997).
2

however, Anson had fallen behind in its commission payments to

Peters. During 1991, in response to Anson's dire financial strait

and the adverse business conditions prevailing in the domestic
jewelry industry at large, Fleet restructured Anson's loan

repayment schedule and assessed Anson an $800,000 deferral fee. I

1992, after determining that Anson had not achieved the pre-tax,

pre-expense earnings level specified in the 1991 loan restructuri

agreement, Fleet waived the default and loaned Anson additional

monies, while expressly reserving its right to rely on any future

default. Anson never regained solvency.

See Fleet Credit Memo

(10/14/93), at 6 ("[Anson] is . . . technically insolvent, with a

negative worth of $6MM at 12/31/92.").

Fleet and Anson entered into further loan restructuring

negotiations in April 1993, after Fleet determined that Anson had

not achieved the prescribed earnings target for December 1992.
Fleet gave Anson formal written notice of the default.
During May 1993, Considine, Anson's CEO, submitted a
radical "restructuring" proposal to Fleet, prompted by the fact

that Anson owed numerous creditors, including Peters, whose claim

represented a serious drain on its limited resources. Considine

recommended that Fleet foreclose on Anson's assets, that Anson be

dissolved, and that a new company be formed to acquire the Anson
assets and carry on its business. The Considine recommendation
stated: "If Fleet can find a way to foreclose [Anson] and sell
certain assets to our [new] company that would eliminate most of

the liabilities discussed above [

viz., including the Peters debt],

then we would offer Fleet . . . $3,250,000." The $3,250,000 offer

to Fleet also contemplated, however, that the new company would

assume all Anson liabilities to essential trade creditors. Otherwise, Fleet was to receive only $2,750,000 for the Anson assets
following the Fleet foreclosure and Fleet would assume "all the

liabilities and the problems attached to it and, hopefully, be ab

to work them out."

Fleet agreed, in principle, to proceed with the propose

foreclosure sale, noting reservations respecting only the foreclo

sure price and the recommendation by Considine that the debt due
Peters neither be satisfied by Anson nor assumed by the new
company. In the latter regard, Fleet advised that its "counsel
[was] not convinced that you will be able to do this without
inviting litigation," and that "there may be a problem on this
issue."

In October 1993, Fleet gave Anson formal notice that it

operating assets were to be sold in a private foreclosure sale to

a newly-formed corporation: C & J Jewelry. Ostensibly out of

concern that Tiffany's might learn of Anson's financial difficul-

ties, and find another jewelry manufacturer, Fleet did not invite
competing bids for the Anson operating assets.

Meanwhile, Peters had commenced arbitration proceedings

against Anson, demanding payment of its unpaid sales commissions.

Peters subsequently secured two arbitration awards against Anson

for $859,068 in sales commissions. The awards were duly confirmed

by the Rhode Island courts.

On October 22, 1993, Anson ceased to function; C & J

acquired its operating assets in a private foreclosure sale from
Fleet and thereupon continued the business operations without

interruption. After the fact, Anson notified Peters that all Anso

operating assets had been sold to C & J at foreclosure, by Fleet.

C & J was owned equally by the Considine Family Trust a

Gary Jacobsen. Considine, Gary Jacobsen and Wayne Elliot, all
former Anson managers, became the joint C & J management team.
Jacobsen and Considine acquired the Anson operating assets from
Fleet for approximately $500,000 and Fleet immediately deposited

$300,000 of that sum directly into various accounts which had bee
established at Fleet in the name of C & J. The $300,000 deposit
was to be devoted to capital expenditures by C & J. Fleet itself
financed the remainder of the purchase price (approximately $1.4

million), took a security interest in all C & J operating assets,

and received $500,000 in C & J stock warrants scheduled to mature

in 1998. C & J agreed to indemnify Fleet in the event it were hel

liable to any Anson creditor.

See Credit Agreement q 8.10.

Considine received a $200,000 consulting fee for negotiating the

sale.
In December 1993, Fleet sold the Anson real estate for

$1.75 million to Little Bay Realty, another new company incorpora

ed by Considine and Jacobsen. Considine and Jacobsen settled upon

the dual-company format in order to protect their real estate

investment in the event C & J itself were to fail. The two
principals provided an additional $500,000 in capital, half of

which was used to enable Little Bay Realty to acquire the Anson
real estate from Fleet. The remainder was deposited in a Little

Bay Realty account with Fleet, to be used for debt service. Fleet
in turn advanced the $1.5 million balance due on the purchase
price. Little Bay leased the former Anson business premises to C
& J.
In April 1994, Peters instituted the present action in
federal district court, alleging that Anson, C & J (as Anson's
"successor"), Considine, and Fleet had violated Rhode Island

statutory law governing bulk transfers and fraudulent conveyances

and asserting common law claims for tortious interference with

contractual relations, breach of fiduciary duty, wrongful foreclo

sure, and "successor liability." The complaint essentially allege

that all defendants had conspired to conduct a sham foreclosure a

sale for the purpose of eliminating Anson's liabilities to certai

unsecured creditors, including the $859,068 debt due Peters in
sales commissions.

The defendants submitted a motion in limine to preclude

the testimony of two witnesses

former banker Richard Clarke and

certified public accountant John Mathias

who were to have

provided expert testimony on the value of the Anson assets.

Ultimately, their testimony was excluded by the district court on

the grounds that their valuation methodologies did not meet minim

standards of reliability and, therefore, their testimony would no

have aided the jury.
Finally, after Peters rested its case in chief, the

district court granted judgment as a matter of law for all

defendants on all claims. The court essentially concluded that

neither Peters nor other Anson unsecured creditors had been wrong

by the private foreclosure sale, since Fleet had a legal right to

foreclose on the encumbered Anson assets which were worth far les
than the amount owed Fleet.
II
DISCUSSION
A.

Exclusion of Expert Testimony

Many of the substantive claims asserted by Peters depen

largely upon whether Fleet was an

oversecured creditor,

i.e.,

whether the Anson assets were worth more than the total indebtedness Anson owed Fleet as of the October 1993 foreclosure. Other-

wise, since Fleet had a legal right to foreclose on all the Anson
assets, there could have been no surplus from which any Anson
unsecured or judgment creditor, including Peters, could have
recovered anything. Thus, evidence on the value of the Anson
assets at the time of the Fleet foreclosure was critical.

Peters proffered the testimony of CPA John Mathias on t

value of the Anson assets. During voir dire, Mathias testified

that the total Anson indebtedness to Fleet amounted to $9,828,000

but that the total value of its assets was $12,738,500.

The

A breakdown of the Mathias methodology follows:

Asset

Maximum

Average

Minimum

Value

Value

Value

district court granted the motion in limine in all respects.

1.

Standard of Review
Peters tendered the Mathias testimony pursuant to Fed.

Evid. 702, which requires trial courts to assess expert-witness

proffers under a three-part standard.
Bogosian v.

Mercedes-Benz of
N.A.,
Inc., 104 F.3d 472, 476 (1st Cir. 1997). The trial court

first must determine whether the putative expert is "qualified by

'knowledge, skill, experience, training, or education.'"

Id.

(citation omitted). Second, it inquires whether the proffered

testimony concerns "'scientific, technical, or other specialized

knowledge.'" Id. (citation omitted). Finally, it must perform its

gatekeeping function, by assessing whether the testimony "will

assist the trier of fact to understand the evidence or to determi

a fact in issue."

Id. Thus, the trial court must decide whether

Accounts Receivable

1,500.000

1,500,000

1,500,000

Other Sales (Unrecorded)

418,000

409,000

400,000

Other Sales (Backlog)

400,000

400,000

400,000

2,648,000

2,648,000

2,648,000

450,000

375,000

300,000

Real Estate

2,941,000

2,941,000

2,941,000

Intangible assets

2,714,000

1,998,500

1,283,000

Net Operating Losses

1,442,000

1,267,000

1,092,000

Life Insurance Policy

1,200,000

1,200,000

1,200,000

Inventory
Machinery/Equipment

_________________________________________________________________
Total

(Avg)

(less) Fleet Debt

Amount Fleet Oversecured

12,738,500
(9,828,000)
2,910,500

Evidence Rule 702 provides: "If scientific, technical, or

other specialized knowledge will assist the trier of fact to

understand the evidence or to determine a fact in issue, a witnes

qualified as an expert by knowledge, skill, experience, training,

or education, may testify thereto in the form of an opinion or
otherwise." Fed. R. Evid. 702.
8

the proposed testimony, including the methodology employed by the

witness in arriving at the proffered opinion, "rests on a

reliable
foundation and is
relevant to the facts of the case."

Id. at 476,

479 (citing Daubert v. Merrell

Dow
Pharms.,
Inc., 509 U.S. 579,
591, (1993)) (emphasis added);
Vadala v.
Teledyne Indus., Inc.

, 44

F.3d 36, 39 (1st Cir. 1995). Finally, the circumspect and deferen

tial standard of review applicable to Rule 702 rulings contemplat

their affirmance absent manifest trial-court error. Bogosian, 104

F.3d at 476 (noting that "an expert witness's usefulness is almos

always a case-specific inquiry");

see also

United
States v.

Schneider, 111 F.3d 197, 201 (1st Cir. 1997) ("In [determining] .

. . relevance, . . . reliability, helpfulness[,] the district cou

has a comparative advantage over an appeals panel . . . [and] is
closer to the case.").
2.

Total Anson Indebtedness

The district court ruled that the proffered testimony

from Mathias, fixing the total Anson indebtedness to Fleet at

$9,828,000, was patently flawed. For one thing, Mathias admitted

The United States Supreme Court has granted certiorari in

Joiner v. General
Elec.
Co., 78 F.3d 524 (11th Cir. 1996),

cert.

granted, 117 S. Ct. 1243 (1997), wherein the Eleventh Circuit hel

that Daubert requires appellate courts to employ a more stringent

standard than "abuse of discretion" in reviewing trial court

"gatekeeping" rulings at the summary judgment or directed judgmen

stage. See
Cortes-Irizarry v.
Corporacion Insular de Seguros

, 111
F.3d 184, 189 n.4 (1st Cir. 1997);
compare

Joiner, 78 F.3d at 529,

and
In re Paoli R.R. Yard PCB Litig.

, 35 F.3d 717, 749-50 (3d Cir.

1994) (same),
with
Duffee v.

Murray Ohio Mfg. Co.

, 91 F.3d 1410-11,

1411 (10th Cir. 1996) (

Daubert requires customary abuse-of-discretion review), and Buckner v. Sam's
Club,
Inc., 75 F.3d 290, 292
(7th Cir. 1996) (same). As the district court ruling was proper
under either standard, we need not opt between them.
9

not including the $800,000 deferral fee Anson owed Fleet in

connection with the 1991 loan restructuring, see supra Section I,

even though he did not question its validity. Moreover, Mathias

conceded that he had no independent knowledge regarding the total

Anson indebtedness, but compiled the $9,828,000 figure from
unspecified Fleet documents. Thus, Peters adduced no competent
evidence that the total Anson indebtedness was less than
$10,628,000.

3.

Value of the Fleet Security Interest

The district court ruled, for good reason, that the

methodology Mathias used to arrive at the $12,738,500 total

valuation for the Anson assets was internally inconsistent and
unreliable. First, on deposition in February 1996 Mathias had

valued the Anson assets at only $10,238,000, roughly equal to the

total indebtedness Anson owed Fleet. After Fleet moved for summar

judgment, however, Mathias revised the valuation on Anson's asset

upward by approximately $2.5 million

well above the total Fleet

indebtedness. Thus, the "moving target" nature of the valuation
alone provided ample reason for the district court to scrutinize
the Mathias methodology with special skepticism. Against this
backdrop, therefore, the deferential standard of review looms as

very high hurdle for Peters. We turn now to the principal factors
which accounted for the increased valuation.
a.

Net Operating Losses

Mathias valued Anson's $5 million net operating loss

("NOL") at approximately $1,267,000. Of course, an NOL

10

"carryforward" may have potential value to the taxpayer (

viz.,

Anson) if it can be used to offset future taxable income.

Mathias
conceded, however, that his inclusion of the NOL carryforward as
Anson asset was "inconsistent," since an NOL normally cannot be
transferred, with certain exceptions inapplicable here ( e.g., a

change in the ownership of a corporate taxpayer through qualified

stock acquisitions). Thus, the Anson NOL carryforward would have
been valueless to a third-party purchaser at foreclosure.

Mathias, on the other hand, included the $1,267,000 NOL

in tallying Anson assets on the theory that the Fleet foreclosure

extinguished Anson's future right to utilize the NOL, thereby
effectively "destroying" the asset. The Mathias thesis is beside

the point, however, since the appraisal was designed to determine

the value of Fleet's security

interest in Anson's assets at the

date of foreclosure (
i.e., the value Fleet might reasonably expect

to realize were the assets sold and applied to the Anson debt),
not

the value of the NOL while Anson continued to function as a going

concern. Thus, Mathias effectively conceded that the value of the

Fleet security interest in the NOL was zero.
b.

Keyman Life Insurance Policy

Mathias proposed to testify that the keyman insurance

policy Anson owned on the life of a former director was worth $1.

million. The valuation was derived from a Fleet document assessin

The Internal Revenue Code allows NOLs to be carried

years, and forward 15 years.

back 3

See 26 U.S.C. S 172(b).

11

Fleet's collateral position, in which the $1.2 million figure

reflected the
net

proceeds payable to the beneficiary (

i.e., Fleet)
at the death of the insured.

The district court correctly concluded that the Mathias

appraisal was patently inflated. As previously noted, the only
material consideration, for present purposes, was the policy's
value at the time Fleet

foreclosed

in October

1993, when the

insured had a life expectancy of seven years and the cash value w
only $62,000. At the very most, therefore, an arm's-length
purchaser would have paid an amount equal to $1.2 million,
discounted to present value.

Indeed, pressed by the district court, Mathias conceded

that he had not calculated "present value," but then estimated it

at "somewhere in the vicinity of $800,000." Mathias likewise
conceded that he had not taken into account the annual premium
($75,000) costs for maintaining the policy seven more years,
totaling $525,000. Thus, Mathias effectively conceded that the

policy might fetch only $275,000, some $925,000 below the proffer
valuation. Absent any suggestion that accepted accounting

principles would countenance such deficiencies, the district cour

acted well within its discretion in excluding the Mathias valua-

tion.
As there has been no demonstration that the appraisal

"rest[ed] on a reliable [methodological] foundation,"

Bogosian, 104

Although its face value was $1.5 million, the policy had bee
pledged to Fleet to secure a $300,000 loan.
12

F.3d at 477, 479, with respect to the net operating losses and th
keyman insurance policy, the most optimistic valuation to which
Mathias supportably might have testified was $10,271,500,
see

supra
Section II.A.2
to Fleet

$356,500 less than the total Anson indebtedness

even assuming all other property values ascribed by

Mathias were reasonably reliable, such as intangible assets (

e.g.,
goodwill, trade reputation, going-concern value, etc.) totaling

$1,998,500, see Rev. Rul. 68-609, 1968-2 C.B. 327; the $2,648,000

valuation given Anson's inventory; and the $2,941,000 real estate

valuation.
B.

The Rule 50(a) Judgments on Substantive Claims

1.

Standard of Review

Judgments entered as a matter of law under Rule 50(a) a

reviewed de novo, to determine whether the evidence, viewed most

favorably to the nonmoving party, Peters, could support a rationa

jury verdict in its favor.

See Fed. R. Civ. P. 50(a); Coyante v.

Puerto
Rico
Ports
Auth., 105 F.3d 17, 21 (1st Cir. 1997). Of

course, Peters was not entitled to prevail against the Rule 50(a)
motion absent competent evidence amounting to "'more than a mere
scintilla.'"
2.

Id. (citation omitted).

The Peters Claims

The gravamen of the substantive claims for relief

asserted by Peters is that Fleet colluded with Considine and

Jacobsen to rid Anson of certain burdensome unsecured debt, there

effecting a partial "private bankruptcy" discharge under the guis

of the Fleet foreclosure, which advantaged Considine and Jacobsen

13

at the expense of Peters and other similarly situated Anson

unsecured creditors. The Peters proffer included: (1) the March

1993 decision by Fleet to declare Anson in default, which coincid

with the Peters demand for payment from Anson on its sales commis
sions; (2) the August 1992 decision by Fleet to waive a default

involving a shortfall much larger than the March 1993 default; (3

the 1993 negotiations with Fleet, in which Considine and Jacobsen

made known their intention that C & J not assume the unsecured de

Anson owed Peters; (4) the decision to arrange a private foreclo-

sure sale by Fleet, thus ensuring that C & J alone could "bid" on
the Anson operating assets; and (5) the payments made to select
unsecured Anson creditors (
i.e., essential trade creditors) only.
The district court ruled that Peters' failure to
establish that Anson's assets were worth more than its total

indebtedness to Fleet was fatal to all claims for relief. It note

that, as an unsecured creditor of Anson, Peters was simply experi

encing a fate common among unsecured creditors who lose out to a
partially
secured creditor (hereinafter: "undersecured creditor")
which forecloses on their debtor's collateral. As the district

court did not analyze the individual claims for relief, we now tu
to that task.
a.

Fraudulent Transfer Claims

Peters first contends that the jury reasonably could ha

found defendants' transfer of the Anson assets fraudulent under
R.I. Gen. Laws SS 6-16-1
et

seq., which provides that a "transfer"

is fraudulent if made "[w]ith actual intent to hinder, delay, or

14

defraud any creditor of the debtor."

Id. S 6-16-4(a)(1).

Normally, it is a question of fact whether a transfer was made wi

actual intent to defraud. At least arguably, moreover, Peters

adduced enough competent evidence to enable the jury to infer tha

defendants deliberately arranged a conveyance of the Anson assets

with the specific intent to leave the Peters claim unsatisfied.

Nonetheless, under the plain language of the Rhode Island statute

the actual intent of the defendants was immaterial as a matter of

law.
The statute covers only a "[fraudulent]

transfer made or
obligation incurred by a debtor."

Id. S 6-16-4(a) (emphasis

added). The term "transfer" is defined as "every mode, direct or

indirect, absolute or conditional, voluntary or involuntary, of

disposing of or parting with an asset or an interest in an asset,

and includes payment of money, release, lease, and creation of a
lien or other encumbrance."

Id. S 6-16-1(l). However, the term

The Rhode Island fraudulent transfer statute lists eleven

"badges of fraud," from which a factfinder might infer actual
fraudulent intent: "(1) The transfer or obligation was to an
insider; (2) The debtor retained possession or control of the
property transferred after the transfer; (3) The transfer or

obligation was . . . concealed; (4) Before the transfer was made

[the] obligation was incurred, the debtor had been sued or

threatened with suit; (5) The transfer was of substantially all t

debtor's assets; (6) The debtor absconded; (7) The debtor removed
or concealed assets; (8) The value of the consideration received
the debtor was [not] reasonably equivalent to the value of the

asset transferred or the amount of the obligation incurred; (9) T

debtor was insolvent or became insolvent shortly after the transf

was made or the obligation was incurred; (10) The transfer occurr
shortly before or shortly after a substantial debt was incurred;
and (11) The debtor transferred the essential assets of the
business to a lienor who transferred the assets to an insider of
the debtor." R.I. Gen Laws S 6-16-4(b).
15

"asset" "does not include . . . (1) Property to the extent it

encumbered by a valid lien."

is

Id. 6-16-1(b) (emphasis added). As

Fleet unquestionably held a valid security interest in all Anson

assets, and Peters did not establish that their fair value exceed
the amount due Fleet under its security agreement,

see

supra

Section II.A, the Anson property conveyed to C & J did not

constitute an "asset" and no cognizable "transfer" occurred under

section 6-16-4(a). See

also
Richman v.

Leiser, 465 N.E.2d 796, 798

(Mass. App. Ct. 1984) ("A conveyance is not established as a
fraudulent conveyance upon a showing of a fraudulent intention

alone; there must also be a resulting diminution in the assets of

the debtor available to [unsecured] creditors.").
b.

The Wrongful Foreclosure Claim and

Uniform Commercial Code ("UCC") S 9-504

Peters claimed that Fleet, in combination with the othe

defendants, conducted a "wrongful foreclosure" by utilizing its
right of foreclosure as a subterfuge for effectuating Anson's
fraudulent intention to avoid its lawful obligations to certain
unsecured creditors. Thus, Peters contends, Fleet violated its
duty to act in "good faith,"

see R.I. Gen. Laws S 6A-1-203 ("Every

contract or duty within title 6A imposes an obligation of good
faith in its performance or enforcement."), thereby entitling
Peters to tort damages. The "good faith" claim likewise fails.
As Peters adduced no competent evidence that Fleet

concocted the March 1993

default by Anson, it demonstrated no

trialworthy issue regarding whether Anson remained in default at

the time the foreclosure took place in October 1993. Specifically

16

Peters proffered no competent evidence to counter the well-

supported ground relied upon by Fleet in declaring a default unde

the 1991 loan restructuring agreement; namely, that Anson failed
meet its earnings target for 1992. See
supra Section I. Nor is it
material that Fleet had waived an earlier default by Peters in

1992, particularly since Fleet at the time expressly reserved its

right to act on any future default.

See id. Thus, Fleet's legal

right to foreclose was essentially uncontroverted at trial.

The Peters argument therefore reduces to the propositio

that a secured creditor, with an uncontested right to foreclose

under the terms of a valid security agreement, nonetheless may be

liable on a claim for wrongful foreclosure should a jury find tha

the secured creditor exercised its right based in part on a

clandestine purpose unrelated to the default.
But
see

Richman, 465

N.E.2d at 799 ("To be a 'collusive foreclosure,' a foreclosure mu

be based on a fraudulent mortgage, or it must be irregularly
conducted so as to claim a greater portion of the mortgagor's
property than necessary to satisfy the mortgage obligation.")
(citations omitted). Since Peters cites

and we have found

no
Rhode Island case articulating the exact contours of a wrongful

foreclosure claim by an unsecured creditor under R.I. Gen. Laws S

6A-1-203, in the exercise of our diversity jurisdiction we are at

liberty to predict the future course of Rhode Island law.

See

Vanhaaren v. State
Farm
Mut.
Auto.
Ins.
Co., 989 F.2d 1, 3 (1st

Cir. 1993). Nevertheless, having chosen the federal forum, Peters

is not entitled to trailblazing initiatives under Rhode Island la

17

See Carlton v. Worcester Ins. Co., 923 F.2d 1, 3 (1st Cir. 1991);
Porter v. Nutter, 913 F.2d 37, 40-41 (1st Cir. 1990). Nor do its
citations
none purporting to apply Rhode Island law

persuade

us that the Rhode Island courts would countenance the freewheelin

"wrongful foreclosure" claim it advocates.

Tellingly, none of the cited cases involved a plaintiff who

had prevailed without demonstrating actual prejudice; that is, th

the secured creditor had neither a present contractual right to
foreclose nor a comprehensive lien claim balance exceeding the
value of the collateral.

We briefly note the more significant distinguishing features

which make the cited authorities inapposite. First, in

Voest-

Alpine Trading USA

v.

Vantage Steel Corp.

, 732 F. Supp. 1315, 132425 (E.D. Pa. 1989),

aff'd, 919 F.2d 206 (3d Cir. 1990), a foreclosure and resale were set aside,
foreclosure under

the common

Fraudulent Conveyance Act,

not

as constituting a

wrongful

law, but under the Pennsylvania

see Pa. Stat. Ann. tit. 39, S 357

(repealed 1993). Moreover, whereas Peters failed to show that the

Anson assets were even arguably worth more than the Anson indebte
ness to Fleet, see supra Section II.A., in

Voest-Alpine, 732 F.

Supp. at 1322, 1325, where the collateral was worth "at least $1
million" and the $1.5 million secured indebtedness was backed by
personal guarantees of $300,000 as well, the district court

concluded that the plaintiff had been "prejudiced" because it mig

have received partial payment had the debtor been forced into a
chapter 7 liquidation or chapter 11 reorganization.
Second, in

Limor
Diamonds,
Inc. v.

D'Oro
by

Christopher

Michael, Inc.
, 558 F. Supp. 709 (S.D.N.Y. 1983), the plaintiff, wh

had sold the debtor diamonds without obtaining a perfected purcha

money security interest, sued both the debtor and a secured
creditor which had foreclosed on the debtor's entire inventory,

including the diamonds, as after-acquired property subject to its

perfected security interest. The plaintiff alleged a conspiracy t

convert the diamonds, on the ground that the defendants had induc
the plaintiff to

deliver the diamonds even as the secured creditor

was poised to foreclose on any after-acquired collateral.
711-12. Thus, the species of bad faith alleged in

Id. at

Limor was

qualitatively different from any involved here, since Peters had

supplied Anson with no goods or assets which could have become
subject to the Fleet security interest.
Third, in Mechanics
Nat'l

Bank
of
Worcester v. Killeen, 384

N.E.2d 1231 (Mass. 1979), a "wrongful foreclosure" claim was uphe

where no default had occurred.

Id. at 1235-36. In the instant

case, of course, there is no suggestion that Peters was not in

default under its loan restructuring agreement with Fleet.
18

Thus, the Peters contention that the jury would need to

delve further into what motivated Fleet to exercise its legitimat

contractual right to foreclose lacks significant foundation in th

cited authorities.

See

also, e.g., E.A.

Miller,
Inc. v.

South

Shore
Bank, 539 N.E.2d 519, 523 (Mass. 1989) ("The [UCC] defines
'[g]ood faith' as 'honesty in fact in the conduct or transaction
concerned[,]' [and] [t]he essence of bad faith, in this context,

not the [secured creditor's] state of mind but rather the attenda
bad actions.") (citations omitted). Consequently, Peters is left
to its argument that the Fleet decision to conduct a private
foreclosure sale, rather than solicit potential competing buyers

a public sale, rendered the foreclosure sale "commercially

unreasonable," in violation of the

objective "good faith" requirement established in R.I. Gen. Laws S 6A-1-203.

See,
e.g.,

American
Sav.
&
Loan
Ass'n v.

Musick, 531 S.W.2d 581, 587 (Tex. 1975)

(wrongful foreclosure involves irregularities in sale which

Finally, Peters relies on

Sheffield
Progressive,
Inc. v.

Kingston
Tool
Co., 405 N.E.2d 985 (Mass. App. Ct. 1980), which
upheld a denial of a motion to dismiss a "collusive foreclosure"
claim that collateral worth over $3 million had been sold in a
private foreclosure sale for only $879,159, the

full amount of the

secured debt. Id. at 987. The decision was based not on a showing
of subjective "bad faith" on the part of the secured creditor,

however, but on an objective determination that if the allegation

were proven true, it would mean that the debtor effectively would
have "released," for no consideration, an unencumbered equity
interest worth over $2 million otherwise available to unsecured
creditors, id., clearly a commercially unreasonable sale.

See

Thomas v. Price, 975 F.2d 231, 239 (5th Cir. 1992);

see

also

Bezanson v. Fleet
Bank
N.H., 29 F.3d 16, 20-21 (1st Cir. 1994)
(affirming finding of commercial unreasonableness where secured
creditor turned down purchase offer of $3.4 million, which would

have left equity for other creditors). Peters, on the other hand,

failed to prove that Anson had any equity in its operating assets
when Fleet foreclosed.

See supra Section II.A.

19

contributed to inadequate price).

Fleet maintained at trial that its decision to conduct

a private sale was reasonable because the publicity attending a

public sale would frighten off Tiffany's, Anson's principal clien

thereby virtually assuring the failure of any successor company
which acquired the Anson operating assets. Thus, Fleet plausibly

reasoned that the anticipated publicity attending a nonprivate sa

would tend to depress the sales price. Peters, on the other hand,

failed to offer any evidence of commercial unreasonableness which

dealt adequately with the justification relied upon by Fleet.

Rather, Peters relied exclusively upon its proffer of testimony

from Richard Clarke, a former banker who would have testified,

categorically, that private foreclosure sales, at which the secur

creditor solicits no third-party bids, are unreasonable per se.

Ultimately, commercial reasonableness poses a question of la

though its resolution often depends on an assessment of the
constituent facts in dispute, such as the actual circumstances

surrounding the particular sale (e.g., sales price, bid solicitation, etc.). See
Dynalectron Corp.
v.
Jack Richards Aircraft Co.

,
337 F. Supp. 659, 663 (W.D. Okla. 1972). The factfinder must
consider all aspects of the disposition, however, as no single
factor, including the sales price, is dispositive.

See Bezanson,

29 F.3d at 20 (N.H. law); RTC v. Carr, 13 F.3d 425, 430 (1st Cir.
1993) (Mass. law).

Peters now suggests that the district court misunderstood a

oversimplified the Clarke testimony, and that Clarke merely meant

that most reasonable private sales would need to be promoted amon

interested third parties

if possible. We have reviewed the

proffered Clarke testimony in its entirety, however, and find no

sound basis for suggesting that the district court abused its

discretion in concluding that it would have confused the jury.

See

Bogosian, 104 F.3d at 476. In other words, as we see it, a sale i

which third-party bids are actively solicited is not a "private"
sale, at least absent considerations not apparent here.
20

Quite the contrary, however, under the Rhode Island UCC

private sales are expressly permitted.

See R.I. Gen. Laws 6A-9-

504(3) (noting that "[d]isposition of the collateral may be by

public or

private proceedings . . . but every aspect of the

disposition including the method, manner, time, place, and terms

must be commercially reasonable"). "A sale of collateral is not
subject to closer scrutiny when the secured party chooses to
dispose of the collateral through a private sale rather than a

public sale. Indeed, the official comment to [UCC] section [9-504

indicates that private sale may be the preferred method of
disposition. . . . The only restriction placed on the secured
party's disposition is that it must be commercially reasonable."

Thomas v. Price, 975 F.2d 231, 238 (5th Cir. 1992). In order to
prove the private foreclosure sale commercially unreasonable,
Peters would have had to demonstrate that the means employed by

Fleet did not comport with prevailing trade practices among those
engaged in the same or a comparable business,

see, e.g., In

re

Frazier, 93 B.R. 366, 368 (Bankr. M.D. Tenn. 1988),

aff'd, 110 B.R.
827 (M.D. Tenn. 1989), whereas Clarke simply testified that

he

invariably solicited bids in foreclosure sales. Clarke did not

testify that the steps taken by Fleet, confronted in October 1993

with the concern that Tiffany's might withdraw its indispensable

jewelry orders, did not comport with reasonable private foreclosu

practice in such circumstances. As to the latter point, Clarke
simply stated that he did not know.
Furthermore, though Fleet may have foreclosed for any

21

number of subjective reasons, the record indisputably discloses

that it had at least one unimpeachable reason: the uncontested

Anson default under the 1991 loan restructuring agreement.
Consequently, we are not persuaded that the Rhode Island courts

would accept the amorphous "wrongful foreclosure" claim advocated

by Peters in the present circumstances.

See Carlton, 923 F.2d at

3. Accordingly, the wrongful foreclosure claim was properly

dismissed.
c.

Bulk Transfer Act (UCC S 6-102(1),(2))

Peters alleged that the sale of all Anson operating

assets to C & J constituted a "bulk transfer" under the Rhode

Island Bulk Transfer Act, see R.I. Gen. Laws SS 6A-6-101, et seq.
("BTA"),

and that the admitted failure to give prior notificatio

to other Anson creditors violated the BTA notice provision, thus

entitling Peters to treat the entire transfer as "ineffective,"

id.

S 6A-6-105. Defendants counter that the asset sale fell within an

express BTA exemption because it was nothing more than a
"[t]ransfer[] in settlement or realization of a lien or other

Of course, were Fleet found to have foreclosed on the Anson

assets solely to assist Considine and Jacobsen in defrauding

certain of Anson's unsecured creditors, the foreclosure could pro

less fruitful than Fleet supposed.

See infra Section II.B.2(d).

But that is an entirely different question than whether Fleet wou

be liable in tort under Rhode Island law.
A "bulk transfer" is "any transfer in bulk and not in the

ordinary course of the transferor's business of a major part of t

materials, supplies, merchandise, or other inventory, . . . [as
well as] a substantial part of the equipment . . . if made in

connection with a bulk transfer of inventory." Id. S 6A-6-102(1),

(2).
22

security interests [ viz., Fleet's

undersecured claim against

Anson]." Id. S 6A-6-103(3);

cf.

supra Section II.B.2(a) (comparable "lien" exception under fraudulent transfer statute).
Parry for thrust, relying on
Starman v.
John Wolfe, Inc.

490 S.W.2d 377 (Mo. Ct. App. 1973), Peters argues that defendants

are not entitled to claim the "lien" exemption under S

6A-6-103(3).

Peters contends,

inter alia, that the first and

third prongs in the

Starman test were not met here. It argues that

though Fleet declared a loan default in March 1993, its loan
officers conceded at trial that Fleet had waived more serious

defaults in the recent past and that it had not reassessed whethe

Anson was still in default in October 1993,

i.e., at the time Fleet

foreclosed. Second, some of the purchase monies C & J paid for th

Anson assets were not applied to Fleet's secured claim against

Anson. For example, Fleet increased the purchase price for Anson'

assets to cover approximately $322,000 in outstanding checks, dra

In Starman, an automobile dealership owed approximately

$60,000 to a bank, which held a security interest in all dealersh

assets, and owed plaintiff Starman a $3,300 unsecured debt. On it

own initiative, the dealership sold its entire business for $74,0
to third parties, who directly paid the bank's security interest

full, then paid over the remaining $14,000 to two other creditors
of the dealership. The court held that a transferee must make

three factual showings to qualify for the "lien" exemption under

BTA S 103(3): (1) the transferor defaulted on a secured debt, and

its secured creditor had a present right to foreclose on the
transferor's assets to satisfy its lien; (2) the transferor
conveyed the collateral

directly to the secured party, rather than

a third party;
and (3) the secured party applied

all sale proceeds

to the transferor's debt, rather than remitting part of the
proceeds preferentially to some (but less than all) of the
transferor's other unsecured creditors.
See

Starman, 490 S.W.2d at

382-83. The Missouri court found that the transferor and
transferees had satisfied none of these criteria.

Id.

23

on Anson's checking account with Fleet and made payable to Anson'

trade creditors. Further, as a term of the asset sale, Fleet
funnelled half a million dollars in "new capital" back into the
newly created business entity, which C & J then used to pay off
certain trade debts it had assumed from Anson. Both transactions
violated Starman's third

or anti-preference

prong, says

Peters, because some, but not all, Anson unsecured creditors were

paid with cash not used to reduce or extinguish the $10,628,000

Fleet debt. We cannot agree.
Starman poses no bar to defendants' "lien" exemption
claim under U.C.C. S 6A-6-103(3). First, as we have noted,

see

supra Section II.B.2(b), Fleet declared the loan default in March

1993 because Anson had failed to achieve its earnings target for

1992. Thus, the very nature of the default meant that it could no
be cured at any time after December 31, 1992, by which time 1992
year-end earnings were a fait accompli. Under the terms of the

loan restructuring agreement, therefore, Fleet had the unilateral

right to foreclose on the collateral. Furthermore, the previous
Fleet waivers of default were immaterial to the question whether

Fleet had a right to foreclose in October 1993, as the default it

expressly declared in March 1993 was never waived.
Second, the circumstances surrounding the Peters claim
remove it from under the third
Starman prong.

In

Starman, and in

We hasten to add, however, that Fleet incorrectly suggests

that the Missouri Court of Appeals later "negated" its

Starman

holding in Techsonic Indus., Inc. v. Barney's Bassin' Shop, Inc.,

621 S.W.2d 332 (Mo. Ct. App. 1981). Rather,

Techsonic jettisoned

24

later cases applying its third prong,

see,

e.g.,

Mid-America

Indus.,
Inc. v. Ketchie, 767 P.2d 416, 418-19 (Okla. 1989), the
sale proceeds were more than sufficient to satisfy the secured
claim in full, leaving excess proceeds. The BTA is designed to
prevent transferors
like Anson

from liquidating their assets

without notice to their creditors, and retaining the proceeds.
Here, however, the sale price paid by C & J did not exceed the
amount due Fleet on its secured claim,
see

supra Section II.A, and

Fleet therefore was entitled to apply the entire purchase price
toward the Anson indebtedness. That Fleet chose to devote a

portion of the sale proceeds to certain Anson trade creditors did

not implicate Starman's third prong since those monies were never

only the second prong in the Starman test. A transferee would be

exempt from the BTA even if the transferor conveyed the bulk asse

to a third party, rather than to its secured creditor, so long as

all sale proceeds were applied to the secured debt. The court

rejected the proposition that the BTA requires the secured credit

and transferee to proceed with the empty formalities of a bifurca

ed transfer (i.e., passing the assets from transferor to secured

creditor, from secured creditor to third-party transferee) in ord

to claim the "lien exemption." Importantly, however, the

Techsonic

defendants had applied all sale proceeds to the secured debt, see
id. at 334 ("[A]ll proceeds went to the bank."), and the

Techsonic
court therefore had no occasion to reconsider

Starman's third

"anti-preference" criterion. Further, other courts have since

acknowledged the continuing efficacy of the third prong in

Starman.
See,
e.g.,
Mid-America Indus., Inc.
v.

Ketchie, 767 P.2d 416, 418-

19 (Okla. 1989) (transfer not exempt where "only a portion of the

proceeds of the sale was paid to the secured creditor"); see also
Ouachita Elec. Coop. Corp.
v.

Evans-St. Clair
, 672 S.W.2d 660, 176-

77 (Ark. Ct. App. 1984) (finding transfer exempt where all procee
were applied to secured debts, but expressly distinguishing

Starman
on ground that defendants had not applied all sales proceeds to
secured debt); Schlussel v. Emmanuel
Roth
Co., 637 A.2d 944, 955

n.5 (N.J. Super. Ct. App. Div. 1994) (in dicta, endorsing
Starman's
partial-proceeds rule);

American
Metal
Finishers,
Inc. v.

Palleschi, 391 N.Y.S.2d 170, 173 (App. Div. 1977) (same);

Peerless
Packing
Co. v. Malone
&
Hyde,
Inc., 376 S.E.2d 161, 164 (W. Va.
1988).
25

"excess" proceeds. Thus, the district court properly dismissed th

BTA claim.
d.

Successor Liability

Next, Peters invokes the "successor liability" doctrine

by contending that C & J is simply Anson reorganized in another

guise, and therefore answerable in equity for Anson's outstanding

liabilities, including the $859,068 debt due Peters in sales

commissions. See
H.J. Baker & Bro.
v.
Orgonics, Inc.

, 554 A.2d 196

(R.I. 1989).

Under the common law, of course, a corporation normally

may acquire another corporation's assets without becoming liable
for the divesting corporation's debts.

See id. at 205; see

also

National Gypsum Co.

v.
Continental Brands Corp.

, 895 F. Supp. 328,

333 (D. Mass. 1995); 15 William M. Fletcher,

Fletcher Cyclopedia of
Law
of
Private
Corporations S 7122, at 231 (1991) [hereinafter:
"Fletcher"]. But since a rigid nonassumption rule can be bent to
evade valid claims, the successor liability doctrine was devised
safeguard disadvantaged creditors of a divesting corporation in
four circumstances. An acquiring corporation may become liable
under the successor liability doctrine for the divesting
corporation's outstanding liabilities if: (1) it expressly or

impliedly assumed the divesting entity's debts; (2) the parties

structured the asset divestiture to effect a
de

facto merger of the

two corporations; (3) the divesting corporation transferred its

assets with actual fraudulent intent to avoid, hinder, or delay i

creditors; or (4) the acquiring corporation is a "mere continua-

26

tion" of the divesting corporation.

See H.J.
Baker, 554 A.2d at

205 (citing, with approval, "mere continuation" test set forth in

Jackson v.
Diamond T. Trucking Co.

, 241 A.2d 471, 477 (N.J. Super.

Ct. Law Div. 1968) (recognizing, as distinct exceptions, both the

"actual fraud" and "mere continuation" tests)); Cranston

Dressed
Meat
Co. v. Packers
Outlet
Co., 57 R.I. 345, 348 (1937) (noting
that nonassumption rule applies only "in the absence of fraud");

see also Golden State Bottling Co. v. NLRB, 414 U.S. 168, 182 n.5
(1973);
Western Auto Supply Co.
v.
Savage Arms, Inc.
(

In re Savage

Indus., Inc.), 43 F.3d 714, 717 n.4 (1st Cir. 1994); Philadelphia

Elec. Co. v. Hercules, Inc., 762 F.2d 303, 308-09 (3d Cir. 1985);
Fletcher, at S 7122. This case implicates the third and fourth
successor liability tests.
The district court dismissed the instant successor
liability claim on the ground that Peters could not have been

prejudiced, because Fleet had a legitimate right to foreclose and

Peters did not prove the Anson assets were worth more than the
total Anson indebtedness to Fleet. On appeal, C & J takes
essentially the same position, but with the flourish that the
successor liability doctrine is inapplicable

per

se where the

divesting corporation's assets were acquired pursuant to an

intervening foreclosure, rather than a direct purchase.

See R.I.

Gen. Laws S 6A-9-504(4) ("When collateral is disposed of by a

secured party after default, the disposition transfers to a

purchaser for value all of the debtor's rights therein and

discharges the security interest under which it is made and any

27

security interest or lien subordinate thereto. The purchaser take

free of all such rights and interests . . . .") (emphasis added).

We do not agree.
First and foremost, existing case law overwhelmingly

confirms that an intervening foreclosure sale affords an acquirin

corporation no automatic exemption from successor liability. See,

e.g.,
Glynwed, Inc.
v.
Plastimatic, Inc.

, 869 F. Supp. 265, 273-75

(D.N.J. 1994) (collecting cases); Asher v.

KCS
Int'l,
Inc., 659

So.2d 598, 600 (Ala. 1995);

G.P.
Publications,
Inc. v.

Quebecor

Printing-St.
Paul,
Inc., 481 S.E.2d 674, 679-80 (N.C. Ct. App.

1997);
see
also
Upholsterers' Int'l Union Pension Fund
v.

Artistic
Furniture
of
Pontiac, 920 F.2d 1323, 1325, 1327 (7th Cir. 1990).
Nor has C & J cited authority supporting its position.

Second, by its very nature the foreclosure process cann

preempt the successor liability inquiry. Whereas liens relate to
assets (viz., collateral), the indebtedness underlying the lien
appertains to a person or legal entity (viz., the debtor). Thus,

although foreclosure by a senior lienor often wipes out junior-li

interests in the same collateral,

see, e.g.,

Levenson v.

G.E.

Capital
Mortgage
Servs.,
Inc., 643 A.2d 505, 512 (Md. Ct. Spec.
App. 1994), rev'd on other grounds, 657 A.2d 1170 (Md. 1995), it
does not discharge the debtor's underlying obligation to junior
lien creditors. See,
e.g.,

Trustees of MacIntosh Condominium Ass'n

v.

FDIC, 908 F. Supp. 58, 64 (D. Mass. 1995) ("'As a result of the
first mortgage foreclosure the second mortgage lien was extinguished but not the second mortgage debt.'") (quoting Osborne v.

28

Burke, 300 N.E.2d 450, 451 (Mass. App. Ct. 1973)). As one might
expect, therefore, UCC S 9-504 focuses exclusively on the effect

foreclosure sale has upon subordinate liens, see R.I. Gen. Laws S
6A-9-504(4),

supra, rather than any extinguishment of the underly-

ing indebtedness. Whereas the successor liability doctrine focuse

exclusively on debt extinguishment, be the debt secured or unsecured.

Following the October 1993 foreclosure sale by Fleet, t

then-defunct Anson unquestionably remained legally obligated to
Peters for its sales commissions, even if the lack of corporate
wherewithal rendered the obligation unenforceable as a practical

matter. True, Fleet might have sold the Anson assets to an entity

with no ties to Anson, but that is beside the point, since the
Peters successor liability claim alleges that C & J

is Anson in

disguise. As Peters simply seeks an equitable determination that

C & J, as Anson's successor, is liable for the sales commissions

It is for this reason that the successor liability doctrine

often proves problematic in bankruptcy proceedings. In contrast t

UCC S 9-504, the Bankruptcy Code expressly permits sales free and
clear of liens, and

of any other " interest" in the collateral.

See, e.g., 11 U.S.C. S 363(f) ("The trustee may sell property . .

. free and clear of

any interest in such property . . . .")

(emphasis added); S 727 (discharge in liquidation); S

1141(d)(discharge in reorganization). Thus, arguably at least,
such "interest[s]" might be thought to encompass successor
liability claims by unsecured creditors. But
see,
e.g.,

Wilkerson
v.
C.O. Porter Mach. Co.

, 567 A.2d 598, 601-02 (N.J. Super. Ct. La

Div. 1989) (finding successor liability doctrine applicable

notwithstanding entry of S 363 order). Unlike a bankruptcy court,

however, a secured creditor and its nonbankrupt debtor lack the
power

either at common law or by statute

to effect a

discharge of underlying third-party debts, even for the most

beneficent of reasons.

29

Peters earned from Anson,

see

Glynwed, 869 F. Supp. at 274-75, its

claim in no sense implicates any lien interest in any former Anso

asset.

Third, successor liability is an equitable doctrine, bo

in origin and nature.

See, e.g., Chicago

Truck
Drivers,

Helpers
and
Warehouse
Workers
Union
(Indep.)
Pension
Fund v.

Tasemkin,

Inc., 59 F.3d 48, 49 (7th Cir. 1995);

The Ninth Ave. Remedial Group

v. Allis-Chalmers Corp., 195 B.R. 716, 727 (N.D. Ind. 1996) ("The

successor doctrine is derived from equitable principles . . . .")

Stevens v. McLouth
Steel
Prods.
Corp., 446 N.W.2d 95, 100 (Mich.
1989); Uni-Com
N.W.,
Ltd. v. Argus

Publ'g
Co., 737 P.2d 304, 314
(Wash. Ct. App. 1987). Moreover, the UCC, as adopted in Rhode
Island, see R.I. Gen. Laws S 6A-9-103, provides that generally
applicable principles of equity, unless expressly preempted, are
supplement its provisions.

See G.P.
Publications, 481 S.E.2d at

680; see also Ninth

Dist.
Prod.
Credit
Ass'n v. Ed
Duggan,

Inc.,
821 P.2d 788, 794 (Colo. 1991) (en banc);

see also

Sheffield

Progressive, Inc.
v.
Kingston Tool Co.

, 405 N.E.2d 985, 988 (Mass.

App. Ct. 1980) (UCC Article 9 does not preempt Uniform Fraudulent
Conveyance Act). Moreover, R.I. Gen. Laws S 6A-9-504 neither

explicitly nor impliedly preempts the successor liability doctrin

Finally, the fact that C & J acquired the Anson assets

indirectly through Fleet, rather than in a direct sale from Anson

does not trump the successor liability doctrine as a matter of la

since equity is loath to elevate the form of the transfer over it

substance, and deigns to inquire into its true nature.

See

Glynwed, 869 F. Supp. at 275 (collecting cases);

G.P. Publications

30

481 S.E.2d at 679-80; see

also Bangor
Punta
Operations,
Inc. v.

Bangor
&
Aroostook
R.
Co., 417 U.S. 703, 713 (1974) ("In such

cases, courts of equity, piercing all fictions and disguises, wil

deal with the substance of the action and not blindly adhere to t
corporate form."); Young v. Higbee
Co., 324 U.S. 204, 209 (1945)
(same); Henry
F.
Mitchell,
Co. v.

Fitzgerald, 231 N.E.2d 373,

375-76 (Mass. 1967) (same). Thus, were C & J otherwise qualified

as Anson's "successor" under Rhode Island law, because its
principals acted with intent to evade the Peters claim,

see

infra,

there would be no equitable basis for treating the asset transfer

by foreclosure differently than a direct transfer from Anson to C

& J.

See A.R. Teeters

&
Assocs.,
Inc. v. Eastman
Kodak
Co., 836

P.2d 1034, 1039 (Ariz. Ct. App. 1992) ("Successor liability is

based upon the theory 'that the assets of a private corporation

constitute a trust fund for the benefit of its creditors . . . .'

(citation omitted). Consequently, we reject the contention that C

& J's acquisition of Anson's assets through the Fleet foreclosure

pursuant to R.I. Gen. Laws S 6A-9-504, warranted dismissal of the

successor liability claim as a matter of law.
Thus, Peters was entitled to attempt to prove that C &

as Anson's "successor," became liable for the Anson debt to Peter

because C & J is a "mere continuation" of the divesting corporate

entity.

See Nissen Corp. v. Miller, 594 A.2d 564, 566 (Md. 1991)

("'The [mere continuation] exception is designed to prevent a

situation whereby the specific purpose of acquiring assets is to

place those assets out of reach of the predecessor's creditors. I

31

other words, the purchasing corporation maintains the same or

similar management and ownership but wears a "new hat."'")
(citation omitted). The "mere continuation" determination turns

upon factfinding inquiries into five emblematic circumstances: (1

a corporation transfers its assets; (2) the acquiring corporation

pays "less than adequate consideration" for the assets; (3) the
acquiring corporation "continues the [divesting corporation's]

business"; (4) both corporations share "at least one common offic
who [was] instrumental in the transfer"; and (5) the divesting

corporation is left "incapable of paying its creditors." See H.J.

Baker, 554 A.2d at 205 (adopting,
inter

alia, the factors set forth

in Jackson, 241 A.2d at 477).

C & J relies heavily, indeed almost exclusively, on

Casey

v.
San-Lee Realty, Inc.

, 623 A.2d 16 (R.I. 1993), wherein the Rhod

Island Supreme Court identified five factual considerations which

contradicted the contention that San-Lee Realty was a "successor"

corporation.

Id. C & J then argues that all five factual

considerations in

Casey appertain here. By disregarding the

distinctive procedural posture in which the

Casey appeal presented

itself, however, C & J fundamentally misdirects its reliance.

Unlike the judgment as a matter of law at issue here, t

Casey court affirmed a judgment entered for the defendants
following a bench trial in which the trial judge made factual
findings directly pertinent to the "mere continuation" theory.

See

id. at 19 ("The findings of fact made by a trial justice, sitting

without a jury, are to be given great weight."). Thus,

Casey

32

provides no support for the proposition that the particular factu

considerations credited by the trial court, qua factfinder, would

permit a trial court, sitting with a jury, to enter judgment as a

matter of law.

We emphasize the misplaced reliance on Casey because it

points up the fundamental flaw underlying the Rule 50 dismissal
below. The

Baker court was careful to note that the "mere

continuation" inquiry is multifaceted, and normally requires a

cumulative, case-by-case assessment of the evidence by the
factfinder.

See H.J.
Baker, 554 A.2d at 205;

see also

Cranston

Dressed
Meat, 57 R.I. at 350 (affirming judgment for plaintiff
based on findings of fact); Steel
Co. v. Morgan
Marshall

Indus.,
Inc., 662 N.E.2d 595, 600-01 (Ill. App. Ct. 1996) (trialworthy
issue of fact precluded directed verdict);

Burgos v.

Pulse

Combustion, Inc.
, 642 N.Y.S.2d 882, 882-83 (App. Div. 1996);

Bryant
v. Adams, 448 S.E.2d 832, 839-40 (N.C. Ct. App. 1994) ("mere

continuation" inquiry implicates issues of fact precluding summar

judgment); Bagin v. IRC Fibers Co., 593 N.E.2d 405, 408 (Ohio Ct.

App. 1991) (genuine issue of fact relating to "mere continuation"

inquiry precluded summary judgment for defendant);
cf.

Dickinson v.

Ronwin, 935 S.W.2d 358, 364 (Mo. Ct. App. 1996) ("Although none o

the badges of fraud existing alone establishes fraud, a concurren

of several of them raises a presumption of fraud.").

Thus, although a Rule 50 dismissal may be warranted whe

the trial court has determined the evidence insufficient to permi

a rational jury to find for the plaintiff, we are not presented

33

with such a case. Rather, viewed in the light most favorable to

Peters, see Fed. R. Civ. P. 50(a);

Coyante, 105 F.3d at 21, its

evidentiary proffer generated a trialworthy issue of material fac

respecting all five factual inquiries identified in
H.J. Baker

, as

we shall see.
(i)

"Transfer" of Assets

Anson transferred all its

operating

assets, thereby

enabling C & J to continue the identical product line without

interruption.

H.J.
Baker, 554 A.2d at 205. C & J nonetheless

contends that a cognizable "transfer" could not have occurred,

because Anson did not convey all its assets to C & J; that is, it
conveyed its real property to Little Bay Realty.

See Casey, 623

A.2d at 19 (finding no transfer where,

alia, not all

inter

corporate assets were conveyed). We disagree.

Under the first

Baker criterion, the plaintiff need only

demonstrate "a transfer of corporate assets."
H.J. Baker

, 554 A.2d
at 205. That is, it is not necessary, as a matter of law, that a

single corporation acquire all the divesting corporation's assets

though the relative inclusiveness of any such asset transfer may

Since the district court judgment must be vacated in any

event, we assume

arguendo that Rhode Island law would require

Peters to make adequate showings on all five Baker factors, even

though Baker expressly adopted the New Jersey model for the "mere
continuation" test, under which "[n]ot all of these factors need
present for a de facto merger or continuation to have occurred."
Luxliner P.L. Export, Co.
v.

RDI/Luxliner, Inc.
, 13 F.3d 69, 73 (3d
Cir. 1993) (citing Good v. Lackawanna
Leather
Co., 233 A.2d 201,
208 (N.J. Super. Ct. 1967)). Indeed, the

Baker court itself did

not even discuss the "inadequate consideration" element in arrivi

at its determination that the acquiring company qualified as a
"successor."

See H.J. Baker, 554 A.2d at 205.

34

prove to be a very pertinent factual consideration which the

factfinder would take into account in the
overall mix.

Cf.

Casey,
623 A.2d at 19 (noting that divesting corporation conveyed only
three-fifths of its assets). In this respect,

Baker accords with

the law in other jurisdictions.

See,
e.g.,

G.P. Publications

, 481

S.E.2d at 679 (successor liability doctrine concerns "the purchase[] of all or

substantially

all the assets of a corporation");

cf. Dickinson, 935 S.W.2d at 364 (recognizing, as badge of fraud,

"the transfer of all or

nearly all of the debtor's property")

(emphasis added); supra note 7.

Yet more importantly, however, this is not an instance
which the divesting corporation transferred its real estate to a
third corporation which was beyond the

de

facto control of the

principals of the corporation which acquired the operating assets

Considine and Jacobsen deliberately structured the overall
transaction so as to keep the Anson operating assets and real
property under the ownership of two separate entities, C & J and
Little Bay Realty respectively, concurrently established and
controlled by them. Once again, therefore, since the successor

liability doctrine is equitable in nature, it is the substance of

the overall transaction which controls, rather than its form. See

Glynwed, 869 F. Supp. at 275. Thus, the fact that C & J leased th

real property from Little Bay is not controlling, since C & J

Rather, the ostensible purpose was to immunize Little Bay

from a possible C
&
J failure, which likewise explains why the
October 1993 agreement contemplated no cross-collateralization.
35

(through Considine and Jacobsen) retained de facto control of the

former Anson real estate following its transfer to Little Bay.
See,
e.g.,

H.J. Baker

, 554 A.2d at 205 (focusing on fact that two

companies "operated from the same manufacturing plant," not on
whether they both owned the premises). Accordingly, viewing the

evidence in the light most favorable to Peters, we cannot conclud

as a matter of law, that no cognizable "transfer" occurred.
(ii) "Inadequate Consideration"
Peters likewise adduced sufficient evidence from which
rational jury could conclude that the operating assets were

transferred to C & J for "inadequate consideration."

Id. The

second Baker factor rests on the theory that inadequate consideration is competent circumstantial evidence from which the
factfinder reasonably may infer that the transferor harbored a
fraudulent intent to evade its obligations to creditors.

See,

e.g., Ricardo
Cruz
Distribs.,
Inc. v.

Pace
Setter,
Inc., 931 F.

Supp. 106, 110 (D.P.R. 1996) ("a fraudulent transfer of property

from the seller to the buyer, evinced by inadequate consideration

for the transfer"); Casey Nat'l Bank v. Roan, 668 N.E.2d 608, 611

(Ill. App. Ct.) ("Proof of fraud in fact requires a showing of an

actual intent to hinder creditors, while fraud in law presumes a
fraudulent intent when a voluntary transfer is made for no or
inadequate consideration and directly impairs the rights of
creditors."),
appeal
denied, 675 N.E.2d 631 (1996);
cf.

Dickinson,
935 S.W.2d at 364 (recognizing "inadequacy of consideration" as

badge of fraud);

supra note 7. On the other hand, a valuable

36

consideration negotiated at arm's-length between two distinct

corporate entities normally is presumed "adequate," particularly

the divesting corporation's creditors can continue to look to the

divesting corporation and/or the sales proceeds for satisfaction
their claims.

See A.R.
Teeters, 836 P.2d at 1040; see also

Arch

Mineral Corp. v. Babbitt, 894 F. Supp. 974, 986 n.11 (S.D. W. Va.
1995) (one inquiry is whether divesting corporation
sufficient assets from which to satisfy creditor claims),

retains

aff'd,

104 F.3d 660 (1997);

Eagle Pac. Ins. Co.
v.

Christensen Motor Yacht

Corp., 934 P.2d 715, 721 (Wash. Ct. App. 1997) (inquiring whether
divesting corporation is "left unable to respond to [the]
creditor's claims").

The total consideration for all Anson assets in this ca

was less than $500,000. Fleet effectively wrote off its outstand-

ing balances ($10,628,000) on the Anson loan in 1993, and provide

C & J and Little Bay Realty "new" financing totaling approximatel

$2.9 million.

See Fleet Credit Memo (10/14/93), at 4 ("This

[agreement] is to involve forgiveness of some of [Fleet's] legal

balance in conjunction with a significant equity injection.")
(emphasis added). Thus, though normally loans obtained by buyers
to finance asset acquisitions would be considered in calculating

the total consideration paid, here the two newly-formed acquiring

Because the conveyances to C & J and Little Bay allegedly

comprised part of an integrated scheme to defraud certain Anson
creditors, we weigh the total consideration involved in both

transactions. Our conclusion would be precisely the same, however

were we to consider only the operating-assets sale to C & J.
37

companies actually incurred no "new" indebtedness to Fleet. In

fact, if the two companies were determined to be Anson's "succes-

sors," the asset sale would have gained them loan forgiveness

approximating $7.728 million (

i.e., $10,628,000, less new indebted
ness of only $2.9 million), given their total exoneration from
Anson's preexisting indebtedness to Fleet. Since the "new" Fleet

loans cannot count as "consideration," at least as a matter of la

C & J and Little Bay paid a combined total of only $1 million in
additional cash consideration for the Anson operating assets and

real estate, of which $550,000 was immediately reinjected into th

two acquiring companies for capital improvements and debt service

See supra Section I. As a practical matter, therefore, C & J and
Little Bay acquired all the Anson assets for only $450,000.
Although Peters utterly failed to demonstrate that the

Anson assets were worth as much as $12,738,000, see supra Section

II.A., it nevertheless adduced competent evidence as to their
minimum value. Thus, the trial record would support a rational

inference that the assets transferred by Anson had a fair value o

just under $4 million. Fleet documents indicate that the book

The district court implied that the fact that Considine and

Jacobsen injected new capital into the two acquiring companies wa

dispositive of the "mere continuation" inquiry. We cannot agree,

however, that an injection of new capital at these minimal levels

precluded a finding of fraudulent intent as a matter of law.
Rather, assuming the reconfigured business were to escape,

inter

alia, the $859,068 debt due Peters, the $450,000 invested by

Considine and Jacobsen could be considered quite a bargain.
Finally, the remaining $550,000 in new capital was directed back
into the C & J and Little Bay coffers, where it served as an
immediate benefit to Considine and Jacobsen, not a detriment.
38

value of the operating assets approximated $5.2 million; Fleet's

conservative estimate of their value approximated $2.11 million;
and its conservative valuation of the real property was $1.78
million. Therefore, with a total

minimum asset value just under $4

million, and a de facto purchase price below $500,000, a rational

jury could conclude that C & J and Little Bay acquired the Anson
assets at 12.5 cents on the dollar.

At these minimal levels, adequacy of consideration

presents an issue for the factfinder.

See Nisenzon v.

Sadowski,

689 A.2d 1037, 1042-43 (R.I. 1997) (under R.I. fraud conveyance

statute, adequacy of consideration is for factfinder, and reviewable only for clear error); see

also Pacific
Gas
&
Elec.
Co. v.

Hacienda Mobile Home Park, 119 Cal. Rptr. 559, 566 (Cal. Ct. App.
1975) ("Adequacy of consideration is a question of fact to be
determined by the trier of fact.");

Gaudio v.

Gaudio, 580 A.2d

1212, 1221 (Conn. App. Ct. 1990) ("[T]he adequacy of the consider

ation in an action to set aside a fraudulent conveyance is an iss

of fact.");
Textron Fin. Corp.
v.

Kruger, 545 N.W.2d 880, 884 (Iowa

Ct. App. 1996) ("We refrain, however, from adopting any mathemati
cal rules to determine the adequacy of consideration. All the

facts and circumstances of each case must be considered."). On th

present record, therefore, it was error to determine as a matter

law that no rational factfinder could conclude that 12.5% of fair

value was "inadequate" consideration for the Anson assets.

See,

e.g., Miner v. Bennett, 556 S.W.2d 692, 695 (Mo. Ct. App. 1977)
("The assumption by the grantees of the mortgages in an amount

39

equal to approximately
one

fourth of the value of the property was

not an adequate consideration for the transfer.") (emphasis added

Moreover, even assuming

arguendo that the circumstantial

evidence of fraudulent intent presented by Peters, in the way of

demonstrating "inadequate consideration," could not have survived

the Rule 50(a) motion for judgment as a matter of law, Peters
adduced competent direct evidence of actual fraudulent intent as

well. Actual fraud is a successor liability test entirely indepen

dent of the circumstantial "mere continuation" test.

See

H.J.

Baker, 554 A.2d at 205 (describing "mere continuation" test as

"[a]n exception," not as "the" exception, to the general rule of

"nonassumption"; citing, with approval, Jackson, 241 A.2d at 477,

which recognized the "actual fraud" test as distinct from the "me
continuation" test, see id. at 475);

Cranston
Dressed
Meat, 57

R.I. at 348 (noting that "nonassumption" presumption applies only

"in the absence of fraud");

see

also Joseph
P.
Manning
Co. v.

Shinopoulos, 56 N.E.2d 869, 870 (Mass. 1944) (UFCA case) ("[A]t

common law, if the conveyance is made and received for the purpos

of hindering, delaying or defrauding creditors it is fraudulent a

can be set aside without regard to the nature or amount of
consideration."); Eagle
Pacific, 934 P.2d at 721 (noting that,
besides the separate "mere continuation" theory, "[s]uccessor

liability may also be imposed where the transfer of assets is for

the fraudulent purpose of escaping liability").

Baker focused on the "mere continuation" test simply becaus

there was no evidence of actual fraudulent intent.

40

Peters adduced

direct evidence that Considine and

Jacobsen entered into the asset transfer with the specific intent

to rid the business of all indebtedness due entities not essentia

to its future viability, including in particular the Peters sales

commissions. Peters notified Anson in March 1993 that it intended

to pursue Anson vigorously for payment of its sales commissions.

See Dickinson, 935 S.W.2d at 364 (recognizing, as badge of fraud,

"transfers in anticipation of suit or execution"); supra note 7.

The intention to evade the Peters debt is explicitly memorialized

in Jacobsen's notes, and yet more explicitly in the May 5, 1993

memo from Considine to Fleet ("If Fleet can find a way to foreclo

the company [
viz., on its security interests in Anson's real estat

and operating assets] and sell certain assets to our company that
would eliminate most of the liabilities discussed above, then we
would offer Fleet . . . $3,250,000."). Thereafter, Fleet

presciently forewarned Considine that its counsel was "not

convinced that you will be able to do this [i.e., shed the Peters
debt] without inviting litigation," and then insisted on an
indemnification clause from C & J should any such litigation
eventuate,
see Credit Agreement q 8.10 (Oct. 26, 1993). Moreover,
it is immaterial whether Considine believed that this evasive
maneuver was essential to ensure the solvency and success of the
Anson business; fraudulent intent need not be malicious.

See

Balzer & Assocs., Inc. v. The Lakes on 360, Inc., 463 S.E.2d 453,

455 (Va. 1995) ("[M]alicious intent is not an element required to

41

prove the voidability of the transfer.").

(iii) " Continuation of Business"

Furthermore, Peters proffered ample evidence on the thi

factor in the

Baker test, by demonstrating that C & J did "continu

[Anson's] business."

H.J.
Baker, 554 A.2d at 205. Among the

considerations pertinent to the business continuity inquiry are:

(1) whether the divesting and acquiring corporations handled

identical products; (2) whether their operations were conducted a

the same physical premises; and (3) whether the acquiring corpora
tion retained employees of the divesting corporation.
See
id.;

see
also Bagin, 593 N.E.2d at 407 ("The gravamen of the 'mere

continuation' exception is whether there is a continuation of the

corporate entity. Indicia of the continuation of the corporate
entity would include the same employees, a common name, the same
product, the same plant.") (citation omitted).

C & J was incorporated in October 1993 for the specific

purpose of acquiring the assets of the then-defunct Anson.

See

Asher, 659 So.2d at 599-600 (noting relevance of fact that

Once again in mistaken reliance on Casey, C & J points out

that the

Casey court found no evidence of fraudulent intent.

However, that determination was based on a finding that the

original transferor had no knowledge of the plaintiff's potential

lawsuit at the time of the asset transfer; hence, could not have

effected the transfer with fraudulent intent to evade the debt it

owed the plaintiff.

See Casey, 623 A.2d at 19. The

Casey court

expressly noted, however, that "the consideration in this case

would not have validated a transfer of assets if the transfer wer

made with notice of the existence of a claim of a creditor."

Id.

at 19 n.4. Not only is it undisputed that the C & J principals

knew of the Peters claim prior to October 1993, but Peters adduce
direct evidence that the asset transfer was structured with the
specific intent to evade the Peters debt.
42

divesting corporation ceased business operations soon after asset

transfer, then liquidated or dissolved); Steel Co., 662 N.E.2d at

600 (noting significance of circumstantial evidence that acquirin

corporation "was incorporated on the same day that [predecessor]
ceased . . . ."). Peters adduced evidence that C & J not only
continued manufacturing the same jewelry products as Anson,

see

H.J.
Baker, 554 A.2d at 205 (noting that two companies "sold

virtually identical [] products"), but conducted its manufacturin

at the same physical premises and continued servicing Anson's

principal customer, Tiffany's. Moreover, its uninterrupted
continuation of the Anson manufacturing business was prominently

announced to Anson's customers in an October 1993 letter from C &

J. See

Glynwed, 869 F. Supp. at 277 (purchasing corporation "held

itself out to the world '"as the effective continuation of the
seller."'") (citations omitted);

Kleen
Laundry
&
Dry

Cleaning
Servs.,
Inc. v. Total
Waste
Mgt.,
Inc., 867 F. Supp. 1136, 1142
(D.N.H. 1994) ("This seamless client transfer reveals that the
defendant purchased and operated a complete business and, in so
doing, tacitly held itself out to the public as the continuation
[] Portland Oil."); cf. United
States v. Mexico
Feed
&
Seed

Co.,
764 F. Supp. 565, 573 (E.D. Mo. 1991) (noting that the acquiring

corporation continued production of the same product lines and he

itself out to the public as a continuation of the divesting

corporation), aff'd in relevant part, 908 F.2d 478, 488 (8th Cir.
1992). In its October 1993 letter, C & J stated that it had

"acquired all of the assets of Anson," that it was its "intention

43

to build on [Anson's '55-year heritage of quality'] to reestablis

the Anson brand as the pre-eminent one [in the jewelry market],"
and that C & J had therefore " retained

all of the former

Anson

employees [including Anson's 'current retail sales representation

the core of any business." (Emphasis added.)
554 A.2d at 205; see also Cyr v.

See H.J. Baker,

B.
Offen
&
Co.,
Inc., 501 F.2d

1145, 1153-54 (1st Cir. 1974) (same employees continued to produc

same products in same factory); Mexico
Feed, 764 F. Supp. at 572

(noting relevance of finding that acquiring entity retained "same

supervisory personnel" or "production facilities"). Finally, in

order to facilitate the product-line continuation, C & J specifically assumed responsibility for, and paid off, all indebtedness
due Anson's "essential" trade creditors.

See Asher, 659 So.2d at

600 (noting that "purchasing corporation [expressly] assumed thos

liabilities and obligations of the seller [

e.g., trade debts]

ordinarily necessary for the continuation of the [seller's] norma

business operations"). Thus, the Peters proffer handily addressed

the third factor in the Baker inquiry.
(iv) Commonality of Corporate Officers

Fourth, Peters adduced sufficient evidence at trial tha

C & J and Anson had "at least one common officer [viz., Considine
or Jacobsen] who [was] instrumental in the [asset] transfer."

H.J.
Baker, 554 A.2d at 205. C & J responds, inappositely, that the
respective ownership interests held by the principals in the
divesting and acquiring corporations were not identical, as
Considine owned 52% of the Anson stock, whereas Jacobsen and the

44

Considine Family Trust were equal shareholders in C & J.

The present inquiry does not turn on a complete identit

of ownership ( i.e., shareholders), however, but on a partial
identity in the corporate managements (i.e., "officers"). Thus,
the fact that Jacobsen not only held a corporate office in both
Anson and C & J but was instrumental in negotiating the asset
transfer to C & J was sufficient in itself to preclude a Rule 50
dismissal under the fourth prong, even if he were not an Anson
shareholder.

See H.J.
Baker, 554 A.2d at 205 (noting that "the

management [of the two companies] remained substantially the

same").
Further, the same result obtains even if we were to
assume that the "one common officer"

referred to in Baker

must be a shareholder as well. Prior to

Baker, the Rhode Island

Supreme Court did not require complete identity between those who

"controlled" the two corporations or the asset transfer, whether

their "control" derived from stock ownership or from their manage

ment positions. For example, the court had upheld a judgment for

plaintiff, following trial, even though the officers and incorpor

tors of the divesting and acquiring corporations were not the sam
on the ground that the

principals involved in the sale "all had a[

[common] interest in the transaction."
R.I. at 349;

Cranston Dressed Meat, 57

cf. Casey, 623 A.2d at 19 (finding no successor

liability where two corporations shared

no stockholders, officers,
or directors);
cf.
also

Glynwed, 869 F. Supp. at 277 ("[C]ontinuit

of ownership, not uniformity, is the test.");

Park v. Townson

&

45

Alexander, Inc.
, 679 N.E.2d 107, 110 (Ill. App. Ct. 1997) ("We not

that the continuity of shareholders necessary to a finding of mer

continuation does not require complete identity between the

shareholders of the former and successor corporations.").

Considine easily fits the bill here. After all, "C & J" stands fo

something and Jacobsen conceded at trial that Considine "participates in the management of C & J Jewelry." Moreover, Considine

admitted that no C & J decision could be taken without Considine'

prior approval.

C & J heavily relies as well on the fact that Considine

individually, held no direct ownership interest in C & J, but
instead had conveyed his interest to the Considine Family Trust.
Once again, however, as equity looks to substance not form,

see

Glynwed, 869 F. Supp. at 275, the fact that Considine established

a family trust to receive his ownership interest in C & J did not

warrant a Rule 50 dismissal, especially in light of his concessio

that he actively participates in the management of C & J.

See

Fleet Credit Memo (10/14/93), at 1 ("[T]hese transactions will be

considered a Troubled Debt Restructure ('TDR') because of

Considine's effective control of the assets both before and after

the contemplated transaction."); id. at 14 (noting that Considine

would be a "Principal" of C & J, although his "involvement in day

to-day operations will be limited"). Moreover, such intra-family

transfers may be nominal only, and thus may constitute circumstan

tial evidence of a fraudulent, manipulative intent to mask the
continuity in corporate control.

See Park, 679 N.E.2d at 110

46

("[W]hile the spousal relationship between the owners of the

corporations does not in itself establish a continuity of share-

holders, it is certainly a factor which can be considered."); The

Steel
Co., 662 N.E.2d at 600 ("We cannot allow the law to be
circumvented by an individual exerting control through his
spouse.");
Hoppa v.
Schermerhorn & Co.

, 630 N.E.2d 1042, 1046 (Ill

App. Ct. 1994) (noting that the fact that former joint tenant
shareholder's interest was reduced to 2%, and that an additional

family member was shareholder of successor corporation, did not

preclude finding of continuity); cf. Dickinson, 935 S.W.2d at 364

(recognizing "a conveyance to a spouse or near relative" as a bad

of fraud);
supra note 7 ("The debtor retained possession or

control

of the property"). Focusing on the transactional substance, rathe

than its form, therefore, we cannot conclude that a rational
factfinder could not decide that Considine used the family trust

camouflage his ultimate retention of control over the Anson jewel

manufacturing business which C & J continued to conduct, without
interruption, after Anson's demise.

See National
Gypsum, 895 F.

Supp. at 337 ("The intended result in all cases is the same, to

permit the owners of the selling corporation to avoid paying
creditors without losing control of their business.") (emphasis
added).
(v)

Insolvency of Divesting Corporation

Finally, C & J does not dispute that Anson is a defunct

corporation, consequently unable to pay its debt to Peters.

See

Nelson v. Tiffany
Indus., 778 F.2d 533, 535-36 (9th Cir. 1985)

47

("Justification for imposing strict liability upon a successor to

a manufacturer . . . rests upon . . . the virtual destruction of

the plaintiff's remedies against the original manufacturer caused

by the successor's acquisition of the business."); The Ninth Ave.

Remedial Group
, 195 B.R. at 727 ("The successor doctrine is derive

from equitable principles, and it would be grossly unfair, except

in the most exceptional circumstances, to impose successor
liability on an innocent purchaser when the predecessor is fully
capable of providing relief . . . .").

Accordingly, since the Peters proffer, at the very leas

generated a trialworthy dispute under each of the five

Baker

factors, the Rule 50 motion was improvidently granted.

e.

Tortious Interference with Contract

The tortious interference claim alleges that Fleet and

Considine acted in concert not only to extinguish the debt Anson

owed Peters for sales commissions, but caused Anson and C & J to
displace Peters prematurely as the sales representative for the
Tiffany's account. The parties agree that the tortious interference claim required that Peters prove: (1) a sales-commission

contract existed between Anson and Peters; (2) Fleet and Considin

Anson retained but one asset

the keyman life insurance

policy

under which Fleet, not Anson, was the named beneficiary.

See supra Section II.A.3(b).
Peters did not name Fleet in the successor liability count
proper, nor seek to amend its complaint when the omission was
brought to its attention at trial. Consequently, we deem any
independent claim against Fleet abandoned. See
Rodriguez v.

Doral

Mortgage Corp.
, 57 F.3d 1168, 1172 (1st Cir. 1995) (abjuring trial
by ambush).
48

intentionally interfered with the sales-commission contract, and

(3) their tortious actions damaged Peters.

See

Jolicoeur Furniture
Co. v.
Baldelli, 653 A.2d 740, 752 (R.I.),
cert.

denied, 116 S. Ct.

417 (1995);
Smith Dev. Corp.
v.
Bilow Enters., Inc.

, 308 A.2d 477,

482 (R.I. 1973). With respect to the first and third prongs, ther

is no dispute that Fleet and Considine knew of the Peters contrac

to serve as Anson's sales representative to Tiffany's, or that
Peters sustained damages due to the premature termination of its
sales-commission contract, without receiving payment for its
outstanding commissions.
With respect to the disputed second criterion (

viz.,

intent), Peters need only establish that Fleet or Considine acted

with "legal malice
an intent to do harm
without

justification."

Mesolella v. City of Providence, 508 A.2d 661, 669-70 (R.I. 1986)

(emphasis added); see Friendswood

Dev.
Co. v. McDade
&
Co., 926
S.W.2d 280, 282 (Tex. 1996) (noting that defendant may assert
defense of "justification," by demonstrating that the alleged
interference was merely an exercise of its own superior or equal

legal rights, or a good-faith claim to a colorable albeit mistake

legal right); see also

Shaw v. Santa
Monica
Bank, 920 F. Supp.

1080, 1087 (D. Haw. 1996);

Greenfield & Co. of N.J.
v.
SSG Enters.

,
516 A.2d 250, 257 (N.J. Super. Ct. 1986). Proof of "[actual]
[m]alice, in the sense of spite or ill will, is not [only not]
required," Mesolella, 508 A.2d at 669-70, it is immaterial,

see

Texas
Beef
Cattle
Co. v. Green, 921 S.W.2d 203, 211 (Tex. 1995)

("[I]f the trial court finds as a matter of law that the defendan

49

had a legal right to interfere with a contract, then the defendan

has conclusively established the justification defense, and the
motivation behind assertion of that right is irrelevant.");

see

also
Belden
Corp. v.
InterNorth, Inc.

, 413 N.E.2d 98, 101 n.1 (Ill

App. Ct. 1980); Kan-Sa
You v. Roe, 387 S.E.2d 188, 192 (N.C. Ct.
App. 1990).
Since the successor liability claim was dismissed
improvidently,
see

supra Section II.B.2(d), the tortious interfer-

ence claim against Considine should have been submitted to the ju

as well. Since a party normally cannot "interfere" with his own
contract,
see
Baker v.

Welch, 735 S.W.2d 548, 549 (Tx. App. 1987),

Considine's status as Anson's CEO and controlling shareholder is

pertinent. As its contracting agent, Considine is Anson, and thus

had a qualified privilege to terminate the Peters contract.

Nonetheless, specialized rules apply to tortious

interference claims against corporate agents. Agency liability is

precluded only if the agent either acted in the "best interests"
its principal (viz., Anson), see Texas
Oil
Co. v. Tenneco,

Inc.,

917 S.W.2d 826, 831-32 (Tx. App. 1994), or, at the very least, di
not act solely to advance his own personal interests,
see

Stafford
v. Puro, 63 F.3d 1436, 1442 (7th Cir. 1995) ("Directors and

officers are not justified in acting solely for their own benefit

or solely in order to injure the plaintiff because such conduct i

contrary to the best interests of the corporation.");

Powell v.

Feroleto Steel Co.

, 659 F. Supp. 303, 307 (D. Conn. 1986);

Phillips
v. Montana
Educ.
Ass'n, 610 P.2d 154, 158 (Mont. 1980); see

also

50

Holloway v. Skinner, 898 S.W.2d 793, 796 (Tex. 1995) (noting that

the personal benefit exception is the logically necessary corolla

to the "rule that a party cannot tortiously interfere with its ow

contract").

Since Anson was insolvent, see infra Section II.B.2(f),

Considine's own investment in Anson was negligible at best, and t

trial record discloses that he not only acted intentionally to

evade Anson's obligation to Peters, but at the same time negotiat

for himself a $200,000 consulting fee. Thus, the circumstantial
evidence and the Considine memoranda to Fleet generated a
trialworthy issue as to whether Considine acted with "legal
malice."

See Mesolella, 508 A.2d at 669-70; see, e.g., Dallis v.

Don
Cunningham
&
Assocs., 11 F.3d 713, 717-18 (7th Cir. 1993)

(upholding jury verdict against corporate officer who had directe

corporation not to pay plaintiff his sales commissions, and where

the officer's "own compensation . . . skyrocketed" during the
relevant time period);
Capital,

see

also, e.g.,

Chandler v.

Bombardier

Inc., 44 F.3d 80, 83 (2d Cir. 1994) (upholding jury

verdict against corporate officer who induced plaintiff's dismiss

al, then personally took charge of plaintiff's department). This
is not a call the district court could make on a motion for
judgment as a matter of law.
On the other hand, the tortious interference claim
against Fleet fails because Peters did not name Fleet as a

defendant in this count, nor move to amend when Fleet brought the
omission to Peters' attention. Cf. supra note 23. Even if Peters

51

had not abandoned its claim, moreover, it cites

supporting case law.

no apposite

See Carlton, 923 F.2d at 3 (plaintiff who

selects federal forum not entitled to trailblazing interpretation

of state law). Fleet unquestionably had a valid legal right to
foreclose on Anson's assets in March 1993, and the total Anson
indebtedness to Fleet exceeded the proven value of the Fleet

collateral. As this constituted an independent and legally suffi-

cient "justification" for the Fleet foreclosure, a finding of

"legal malice" appears to have been precluded as a matter of law.

See Friendswood
Dev., 926 S.W.2d at 282 ("justification" is the
exercise of one's own legitimate legal rights); cf. Keene

Lumber
Co. v.

Levanthal, 165 F.2d 815, 820 (1st Cir. 1948) (finding

tortious interference where defendants made false representations

to unsecured creditor, and attempted to avoid the unsecured
creditor's claims by foreclosing upon sham chattel mortgages).
f.

Breach of Fiduciary Duty

Finally, Peters claims that Considine breached a

fiduciary duty to Peters, since the value of the shareholders'
investment in an insolvent company is negligible, and the
corporation's directors thereafter become trustees of "the
creditors to whom the [company's] property . . . must go."

Olney

v. Conanicut
Land
Co., 16 R.I. 597, 599 (1889) (emphasis added);
see Unsecured
Creditors'
Comm. v. Noyes (In

re
STN
Enters.), 779

F.2d 901, 904-05 (2d Cir. 1985); Association of Mill and Elevator
Mut. Ins. Co.
v.
Barzen Int'l, Inc.

, 553 N.W.2d 446, 451 (Minn. Ct

App. 1996); Whitley v. Carolina Clinic, 455 S.E.2d 896, 900 (N.C.

52

Ct. App. 1995). Considine responds that Peters failed to establis

that he converted any of the Anson assets to his personal use, an

further that he could not have done so, because Fleet had a
comprehensive lien on all operating assets. We disagree.

A breach of fiduciary duty need not amount to a conversion in order to be actionable. "[D]irectors and officers [of

insolvent corporations] may not pursue personal endeavors inconsi

tent with their duty of undivided loyalty to . . . the

corporations' stockholders and creditors." American Nat'l Bank of

Austin v.
MortgageAmerica Corp.

(
In re MortgageAmerica Corp.

), 714

F.2d 1266, 1276 (5th Cir. 1983); see National Credit Union Admin.
Bd. v.

Regine, 749 F. Supp. 401, 413 (D.R.I. 1990) (as a fiduciary

director must "place the interests of the corporation before his
own personal interests"). Whereas, the present record discloses,
for example, that Considine negotiated a $200,000 consulting fee
for himself as part of the October 1993 agreement,

see

supra

Section I, and Peters received nothing. Therefore, the jury must

determine whether Considine breached his duty as an Anson directo

If, then, the director be a trustee, or one
who holds a fiduciary relation to the creditors, in case of insolvency he cannot take
advantage of his position for his own benefit
to their loss. The right of the creditor does
not depend on fraud or no fraud, but upon the
fiduciary relationship.
Olney, 16 R.I. at 602.

In addition, Peters maintained, without citing to Rhode

Island authority, that Fleet must be held answerable for inducing

Considine to breach his fiduciary duty to the bypassed Anson cred

53

tors. Fleet correctly counters that it cannot be held liable,

however, since its comprehensive lien on the Anson operating asse

precludes a finding that Peters was a "creditor[] to whom the
[company's] property . . . must go."

Olney, 16 R.I. at 599.

Moreover, even assuming the Rhode Island courts were to recognize

such a cause of action, Peters would have had to show that: (1)
Considine breached a fiduciary duty; (2) Fleet knowingly induced

participated in the breach; and (3) Peters sustained damages from

the breach.

Whitney v. Citibank,
N.A., 782 F.2d 1106, 1115 (2d

Cir. 1986). We are unable to discern how Peters could succeed on

a tortious inducement-to-breach claim which is essentially "analo

gous to a cause of action for intentional interference with
contractual relations."

Id. Thus, for the reasons discussed in

relation to the tortious interference claim against Fleet,

see

supra Section II.B.2(e), we affirm the dismissal of the present

claim as well.
III
CONCLUSION
Accordingly, the district court judgment is affirmed

insofar as it dismissed all claims against Fleet; the judgments i

favor of C & J and Considine are affirmed, except for the success

liability claim against C & J and the claims for tortious interfe

ence with contract and breach of fiduciary duty against Considine

which claims are remanded to the district court for further

54

proceedings consistent with this opinion.

SO ORDERED.

We note also that though we have adverted to various

numerical figures, drawn from the trial record, to demonstrate in

broad outline that Peters did generate trialworthy factual disput

appropriately left to the trier of fact, we do not suggest that t

court, on remand, is in any way bound by these figures, as
distinguished from the legal principles espoused in our opinion.
55